Report: iPhone maker Apple keeping billions of dollars in Irish subsidiaries to avoid taxes

WASHINGTON/SAN FRANCISCO: Using an unusual global tax structure, Apple Inc
has kept billions of dollars in profits in Irish subsidiaries to pay
little or no taxes to any government, a U.S. Senate report on the
company's offshore tax structure said on Monday.
In a 40-page memorandum released a day before Apple CEO Tim Cook
is scheduled to testify before Congress, the Senate's Permanent
Subcommittee on Investigations identified three subsidiaries that have
no "tax residency" in Ireland, where they are incorporated, or in the
United States, where company executives manage those companies.
The
main subsidiary, a holding company that includes Apple's retail stores
throughout Europe, has not paid any corporate income tax in the last
five years.
The subsidiary, which has a Cork, Ireland, mailing
address, received $29.9 billion in dividends from lower-tiered offshore
Apple affiliates from 2009 to 2012, comprising 30 percent of Apple's
total worldwide net profits, the report said.
"Apple has exploited a difference between Irish and U.S. tax residency rules," the report said.
Apple
said in a comment posted online on Monday it does not use "tax
gimmicks." It said the existence of its subsidiary "Apple Operations
International" in Ireland does not reduce Apple's U.S. tax liability
and the company will pay more than $7 billion in U.S. taxes in fiscal
2013.
Subcommittee staffers said on Monday that Apple was not breaking any laws and had cooperated fully with the investigation.
CODE OVERHAUL SOUGHT
Tuesday's hearing is the second to be held by Senator Carl Levin,
a Michigan Democrat and chairman of the subcommittee, to shed light on
the weaknesses of the U.S. corporate tax code. Levin has sought to
overhaul the code in Congress.
Lawmakers globally are closely scrutinizing the taxes paid by multinational companies. In Britain, Google faces regulatory inquiries over its own tax policies, while Hewlett-Packard Co and Microsoft Corp have been called to Capitol Hill to answer questions about their own practices.
Corporations
must pay the top U.S. 35-percent corporate tax on foreign profits, but
not until those profits are brought into the United States from abroad.
This exception is known as corporate offshore income deferral.
In
submitted testimony ahead of Tuesday's hearing, Apple said any tax
reform should favor lower corporate income tax rates regardless of
revenue, eliminate tax expenditures and implement a "reasonable tax on
foreign earnings that allows free movement of capital back to the US."
"Apple recognizes these and other improvements in the U.S. corporate tax system may increase the company's taxes," it said.
Large
U.S. companies boosted their offshore earnings by 15 percent last year
to a record $1.9 trillion, avoiding hefty tax bills by keeping the
profits abroad, according to research firm Audit Analytics.
TAX SCRUTINY
Apple
also uses two conventional offshore tax practices typical of
multinational companies' tax-avoidance strategies, the report said.
Multinational
corporations value goods and services moving across international
borders from one corporate unit to another. Known as "transfer
pricing," these moves are frequently managed to reduce corporations'
global tax costs.
Apple's tax structure highlights flaws in the
U.S. corporate tax code so that Congress "can effectively close the
loopholes used by many U.S. multinational companies," Arizona Senator John McCain, the subcommittee's top Republican, said in a statement on Monday.
Levin,
who announced he will retire at the end of 2014, introduced legislation
in February to close tax loopholes. At a news conference on Monday,
Levin said his bill should pass independent of any broader tax reform
push in Congress.
McCain, the top Republican on the
subcommittee, told the joint news conference he would co-sponsor
Levin's bill, the first Republican to support the bill. He called
Apple's tax practices "egregious, and (a) really outrageous scheme."
Similar legislation has been introduced in the House of Representatives.
Government
tax officials from the Internal Revenue Service and Treasury Department
also are scheduled to testify before the subcommittee on Tuesday. -
Reuters
Reuters also reported that Apple is to argue for tax reform and defend tax practices on Tuesday
SAN
FRANCISCO: Apple Inc will argue for a comprehensive corporate tax
reform that will levy a "reasonable tax" on foreign earnings and is not
dependent on a company's revenue when it goes before a Senate panel on
Tuesday to explain its offshore tax practices.
In prepared
testimony released by the company and submitted ahead of Apple Chief
Executive Tim Cook's hearing on Tuesday before the Senate Permanent
Subcommittee on Investigations, Apple denied it employed "tax gimmicks"
like using Cayman Islands bank accounts or shifting intellectual
property abroad.
It also said the existence of its subsidiary
"AOI" in Ireland - which has been criticized as a way to shift money
from the United States - does not reduce Apple's U.S. tax liability.
Tuesday's
hearing is the second to be held by Senator Carl Levin, a Michigan
Democrat and chairman of the subcommittee, to examine how the
weaknesses of the U.S. corporate tax code is helping large companies
avoid paying taxes on offshore earnings.
Cook, in his first
Senate testimony on the issue as CEO, will face lawmakers' queries over
his company's overseas cash holdings and tax bills.
The hearing
comes as lawmakers globally are closely scrutinizing the taxes paid by
multinational companies. In Britain, Google faces regulatory inquiries
over its own tax policies, while Hewlett-Packard Co and Microsoft Corp
have been called to Capitol Hill to answer questions about their own
practices.
U.S.-based multinationals do not have to pay U.S.
corporate income tax on foreign earnings as long as the earnings do not
enter the United States. Accounting rules also let the companies avoid
recognizing a tax expense if management intends to keep the earnings
indefinitely re-invested overseas.
KEY ISSUE
In the
submitted testimony, Apple said any tax reform should favour lower
corporate income tax rates regardless of revenue, eliminate tax
expenditures and implement a "reasonable tax on foreign earnings that
allows free movement of capital back to the US."
"Apple
recognizes these and other improvements in the US corporate tax system
may increase the company's taxes," it said, adding that it expects to
pay over $7 billion in taxes to the US Treasury in its current fiscal
year.
Large U.S. companies boosted their offshore earnings by 15
percent last year to a record $1.9 trillion, avoiding hefty tax bills
by keeping the profits abroad, according to research firm Audit
Analytics.
Corporate tax reform is a key issue for Apple as its
offshore cash piles up, with sales outside of its home country
accounting for two-thirds of the company's $43.6 billion in revenue
during its fiscal second quarter. Over $102 billion of Apple's total
$145 billion cash was held offshore as of the end of March.
To
mollify investors, the company will borrow money to pay for an expanded
$100 billion cash return program for its investors, rather than
repatriate its overseas cash at the present tax rate of 35 percent.
Apple
said in the testimony that it was able to borrow money for that program
at a cost of less than 2 percent, which makes the interest rate on the
debt lower than the dividend yield on the company's shares. - Reuters